What is meant by Bad Debt?
Bad debt can be written off using either the direct write off method or the provision method. The first approach tends to delay recognition of the bad debt expense. It is necessary to write off a bad debt when the related customer invoice is considered to be uncollectible. Otherwise, a business will carry an inordinately high accounts receivable balance that overstates the number of outstanding customer invoices that will eventually be converted into cash. There are two ways to account for a bad debt, which are as follows:
Direct write off method. The seller can charge the amount of an invoice to the bad debt expense account when it is certain that the invoice will not be paid. The journal entry is a debit to the bad debt expense account and a credit to the accounts receivable account. It may also be necessary to reverse any related sales tax that was charged on the original invoice, which requires a debit to the sales taxes payable account.
Provision method. The seller can charge the amount of the invoice to the allowance for doubtful accounts. The journal entry is a debit to the allowance for doubtful accounts and a credit to the accounts receivable account. Again, it may be necessary to debit the sales taxes payable account if sales taxes were charged on the original invoice.
Here you can learn about the steps to create the Journal voucher for adjusting Bad Debts.
1. First, Login with Fresa gold, Navigate to Accounts -> All vouchers, select the voucher type as Journal Voucher and click Create (Single) button (Fig.1).
2. Second, enter the Branch, Party A/c, Period, etc, once entered, click the Save button to create the Journal voucher (Fig.2)
3. Now the Voucher is successfully generated (Fig.3).
4. Once generated the voucher, you can view the Account Details to add the Party details, click Add button (Fig.4)
5. In Get OS/ Charges, select the party in Account and voucher number, once selected, click the select option and click Save button (Fig.5).
6. Click the Add button and enter the Bad debt in A/C name and enter the amount. Click Save and Close button (Fig.6)
7. Kindly note, the total credit and the debit amount should match, only then the system will allow to Approve and Post the voucher (Fig.7)
I hope you got an idea about the steps to adjust the Bad debts in Journal voucher.
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